Fiscal Dominance, Flows from China, Plus Some Thoughts on Global Conflict (Core Strategy Rebalance)
What BTC Shrugging Off CPI Says About Current Fiscal Situation
The most significant piece of macro data this week was the CPI. Headline CPI registered at 3.5%, surpassing the anticipated 3.4%, while core CPI remained steady from last month at 3.8%, also above the expected 3.7%. This increase was largely attributed to rising costs in auto insurance and shelter. Consequently, interest rates saw a sharp rise, with the 10-year Treasury yield climbing by 20 basis points—a situation further exacerbated by a poor 10Y auction on Wednesday.
The DXY ascended back above 105 as major equity indices experienced declines. Despite this, Bitcoin closed the day in the green, surprising many. This was a massively bullish sign, which, in our view, is a nod to fiscal dominance, the stimulative effect fiscal spending is having on the economy and financial assets, as well as the precarious position that the Fed and the Treasury have found themselves in.
In our outlook for the year, we presented the following chart and discussed how the divergence between gold and real rates suggests that the opportunity to curb inflation with rate adjustments may be over, whether achieved or not. The peak in real rates has occurred – and the market knows this.
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